CHENNAI: Domestic helper Kasturi Karuppusamy fell into the debt trap with a loan of Rs. 5 lakh, due to her daughter’s marriage celebrated during the pandemic.
“The groom’s side demanded a wedding which amounted to Rs. 5 lakh and we had to give them what they wanted because Priya is our only daughter,” said Kasturi, a resident of Chennai.
She had borrowed money from a loan shark on kandhu vatti (usury interest) of 60% per annum and 5% per month, which is equivalent to Rs. 25,000 per month.
State loan sharks continue to charge higher interest rates than those allowed by law. According to Article 7 of the Money Lenders Act, money lenders are prohibited from charging interest above 12% per annum.
Her husband being the head of a union in the Municipality of Nungambakkam; one of his sons having completed his studies and another, his polytechnic; Kasturi hoped she would be able to repay the amount.
However, she said, due to the pandemic, Kasturi herself lost her job and her sons were unable to find jobs. Her total family income became the total income of her husband, Karuppusamy – Rs. 25,000 per month.
On top of that, Kasturi said she borrowed another lakh for the delivery of Priya’s child. “The lenders took my plight and my desperation for granted and increased the vatti to 80 percent,” Kasturi said. She said she was able to repay the interest of Rs. 25,000 each month but is struggling to pay her daily expenses.
“The money is instant and doesn’t require us to submit documents, so kandhu vatti is preferred by most,” she says. The documents required for a personal bank loan mainly include proof of identity, proof of address, bank statements for the last three months and the last payslip, which most people belonging to groups in difficulty do not have access to. .
“There is no guarantee that people will return the money,” said a Chennai loan shark, who declined to be named. “This business basically operates on faith, which ultimately leads people to borrow money beyond their repayment capacity.”
There have been several reports covered by the media, in which borrowers have been subjected to death threats, harassment, shame leading some debtors to commit suicide, as well as the lives of their family members. In 2017, Esakkimuthu, a laborer, set himself with his family inside the collector, succumbing to pressure from his loan shark, Muthulakshmi, who demanded double the amount she loaned him.
In response to such problems in the past, the government in power at the time – AIADMK – asked debtors to go to district collectors and police officers. However, according to reports, no action has been taken.
According to media reports, Muthulakshmi had close contact with the retired secondary inspector, who influenced the police not to take any action against her.
Kandhu vatti, however, is a double-edged sword. There have been reports of loan sharks murdered by debtors for being abusive towards them. “Borrowers can easily get away with not repaying the money,” said the loan shark, when asked about the challenges he faced. “We are obligated to hunt them down and demand to be paid back with interest.”
Although Tamil Nadu’s financial literacy rate is the second highest in India at 26%, around 14.5% of the population does not have access to formal banking services. Financial literacy in Tamil Nadu is 46%, which is higher than that of India, but usury is predominantly prevalent in the state.
IDFC, a microfinance institution operating in Tamil Nadu, offered Kasturi a loan of Rs. 30,000 with an interest of 10.99% and a loan processing fee of 2.5%. However, Kasturi required a minimum of Rs. 5 lakh for the wedding. “I had no choice but to turn to loan sharks,” she said.
Microfinance institutions are formal RBI-approved banking institutions that help people with a loan of less than 1 lakh, with an interest of less than 10%. These institutions offer money and help for the urgent needs of families, despite the fact that these borrowers do not offer a strong guarantee of repayment of the money.
“People who approach loan sharks are uneducated and cannot sign their own signatures. They borrow an amount, usually no more than Rs. 10,000, ”said the loan shark.